High Court · 2024

T.C.(A)No.207 of 2013IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 27.11.2024CORAM :THE HONOURABLE DR.JUSTICE ANITA SUMANTHandTHE HONOURABLE MR.JUSTICE G. ARUL MURUGANT.C.(A)No.207 of 2013Smt.A.Rita.... Appellant vsThe Commissioner of Income TaxPuducherry. .... Respondent Prayer : Appeal filed under Section 260A of the Income Tax Act, 1961 against order dated 30.01.2013 made in I.T.A.No.904/Mds/2012 on the file of the Income Tax Appellate Tribunal, 'D' Bench, in respect of assessment year 2008-09.For Appellant:Mr.A.S.SriramanFor Respondent: Mr.S.RajeshJunior Standing Counsel for Mr.J.NarayanasamySenior Standing Counsel1/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013JUDGMENT(Delivered by Dr. ANITA SUMANTH.,J)The relevant sequence of dates and events are as follows:(i) The appellant/assessee purchased a property at S.No.93/5, Valudhareddy Village, Villupuram Taluk ad measuring 1.18 acres by way of a deed dated 22.01.1980 registered on the file of the Sub-Registrar, Villupuram (schedule property) from Shanmugam, Arumugam and Murugan (in short 'vendors'). (ii) That property formed part of a basket of assets that was under litigation inter se the family of the vendors. (iii) A partition suit came to be filed in O.S.No.288 of 1981 by the sisters of the vendors, viz., Saraswathi and Lakshmi, which came to be decreed in favour of the sisters partly.(iv) Assailing the decree in the Suit, the sisters of the vendors filed a first appeal before Sub-Court, Villupuram in A.S.No.135 of 1983, which confirmed the order of the Civil Court in regard to items 1 to 37 of the suit properties, which includes the schedule property at serial number 36 thereof.2/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013(v) A second appeal in S.A.No.458 of 1985 came to be filed by the vendors and Cross objections were filed by the sisters. (vi) The second appeal was disposed on 09.04.1986, a learned Judge of this Court confirming that the conclusion of the Civil Court was correct qua properties at 1 to 37. (vii) Hence, and with the passing of the order in second appeal, the title to the schedule property was held to vest in the sisters. (viii) An Execution Petition was filed by the sisters seeking to execute the decree. (ix) Pending the proceedings for execution, the parties, that is, the appellant herein and the sisters, effected a compromise of the lis, and entered into Deed of compromise dated 07.10.2005 to following effect:cld;gof;if gj;jpuk;2005 Mk; Mz;L mf;nlhgh; 7Mk; njjp tpGg;g[uk; lt[d; re;jhdnfhghyg[uk; bkapd; nuhL 34 ,yf;fj;jpy; trpf;Fk; me;njhdprhkp kidtp hPj;jh mk;khs; (1). tpGg;g[uk; jhYf;fh rhynkL fpuhkj;jpy; trpf;Fk; uhkfpUc&;zd; kidtp ru!;tjp (2). nkw;go tpGg;g[uk; jhYf;fh rhynkL fpuhkj;jpy; trpf;Fk; mnrhf ft[z;lh; kidtp yc&;kp (3) Mfpa ehk; K:tUk; vGjpf;bfhz;l xg;ge;jk; vd;dbtdpy;ek;kpy; 2. 3 egh;fs; tpGg;g[uk; khtl;l chpikapay; ePjpkd;wj;jpy; tGjbul;o fpuhkk; g[";ir 93-5 epyk; Fwpj;J jhf;fy; bra;ag;gl;l E.P.236/97 3/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013epiwntw;W kDtpid bghWj;J. ek;kpy; Kjy; egh; nkw;go brhj;J mtUf;F jdpg;gl;l ghj;akhd brhj;J vd;W fl;rp Mo nkw;go E.P.236/97 js;Sgo bra;ag;gl ntz;Lbkd;W ek;kpy; Kjy; egh; E.A.2403/1997 vd;w kDtpid jhf;fy; bra;J nkw;go kD epYitapy; ,Ue;J tUfpd;w NH;epiyapy;. cga ghh;l;ofs; fl;rp vg;goapUe;j nghjpYk; ,e;j tHf;fpid tpiutpy; xU Kot[f;F bfhz;L tuntz;Lbkd;W vz;zj;jpdhy;. ehk; midtUk; uh$pahfp. mjd;go ek;kpy; 1 tJ egh; jhf;fy; bra;j chpikapay; rl;lk; Mh;lh; 21 tpjp 97 E.A.2403/1997 vd;w kDtpid mDkjpf;f 23 egh;fs; xg;g[f;bfhz;Ls;sdh;/ mjw;F gpujpgydhf ek;kpy; 1 Mk; egh; nkw;go g[y vz; 93-5 70 brz;l; brhj;jpid fpiuak; bra;J mjd; K:yk; fpilf;Fk; fpiua bjhifapy; ghjp bjhifapid ek;kpy; 1Mk egUk; kPjp bjhifapid ek;kpy; 2. 3 egh;fSk;. rhp rkkhf vLj;Jf;bfhs;tjhf ehk; midtUk; xg;g[f;bfhz;Ls;nshk;/ nkYk; 2. 3 egh;fSf;F chpa ghjp fpiua bjhifapid fpiuajhuhplkpUe;nj 2/ 3 egh;fs; neuoahf bgw;Wf;bfhs;tjpy; 1Mk; egUf;F vt;tpj Ml;nrgiza[k; ,y;iy/ mt;thW mth;fs; bgw;Wf;bfhs;Sk; fpua bjhiff;F chpa tUkhdthpapid 2. 3 egh;fns brYj;jp bfhs;sntz;oaJ/nkYk; flY}h; tPl;L trjp thhpaj;jhy; Mh;$Pjk; bra;ag;gl;lJk; O.S.288/81y; rk;ke;jg;gl;l 9. 10. 11. 13. 16 mapl;l brhj;Jf;fs; bghWj;Jk; ekf;Fs; ehk; uh$pahfpa[s;sgoahy; mjd; xl;Lbkhj;j igrYf;fhf ek;kpy; 1Mk; egh; ek;kpy; 2. 3 egh;fSf;F xl;Lbkhj;jkhf U:/5.00.000-? (Ie;J yl;rk; kl;oy;) jUtjhft[k; 1Mk; egh; xj;Jf;bfhs;fpwhh;. mjd;go 2. 3 egh;fs; nkw;go brhj;Jf;fs; Fwpj;j epiwntw;W kD jhf;fy; bra;tjpy;iy vd;W cWjp TWtJld; mJ Fwpj;J 1Mk; egh; chpa kD (m) tHf;F jhf;fy; bra;a[k; gl;rj;jpy; nkw;go kD (m) tHf;fpid mDkjpf;f 2. 3 egh;fs; rk;kjKk; bjhptpf;fpwhh;fs;/ ,J rk;ke;jkhf 2. 3 egh;fs; 4/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013brd;id cah;ePjpkd;wj;jpy; jhf;fy; bra;Js;s ePjp nguhiz W.P.No.40423/2002 tHf;fpida[k; thg!; bgw;Wf;bfhs;fpd;wdh;/ ,e;jgof;F ehk; K:tUk; rk;kjpj;J vGjpf;bfhz;l cld;gof;if gj;jpuk;/(x) An application thus came to be filed by the Appellant in E.A.No.2403 of 1997 under Order 21 Rule 97 of the Civil Procedure Code praying to dismiss E.P.No.236 of 1997. (xi) In the course of the Execution proceedings, the Principal District Munsif, Villupuram passed an order dated 19.10.2005 recording the memo filed by Rita, Saraswathi and Lakshmi to the effect that they had no objection to E.A.No.2403 of 1997 being allowed. The litigation inter se the parties thus came to an end by virtue of the aforesaid order only. (xii) The Appellant filed a return of income for assessment year (AY) 2008-09 on 29.07.2008 returning capital gains computed on the basis that the amount paid by her to the sisters be taken into account in determining the computation of cost of acquisition of the subject property. (xiii) An assessment came to be made on 31.10.2010 and in completing the assessment, the Assessing Authority took the view that the 5/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013amounts paid as compensation did not constitute expenditure that could be allowed in the computation of capital gains. (xiv) Before the Commissioner of Income Tax (Appeals) in first appeal, the appellant reiterated its case that the compensation constituted part of the cost of acquisition. All relevant documents such as the deed of purchase dated 22.01.1980, order of the Civil Court dated 23.01.1985 in O.S.No.288 of 1981, order in First Appeal dated 23.01.1985 in A.S.No.235 of 1983, the order of the High Court in Second Appeal dated 09.04.1996 in S.A.No.458 of 1985, order passed by the Principal District Munsif on 19.10.2005 in the interim application filed by the appellant, compromise memo dated 07.10.2005, Agreement of sale between the appellant and the three sisters dated 07.10.2005 and the order of the Principal District Munsif dated 06.08.2008 closing the application based on the memo were placed before the CIT(A), who on consideration of the same, accepted the assessee's contention. (xv) The above order was reversed on 30.01.2013 by the Income Tax Appellate Tribunal ('ITAT'/'Tribunal') at the instance of the revenue. The Tribunal took the view that the compensation paid would, at best, only 6/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013amount to application of the amount and not cost of acquisition under Section 48 of the Act. Hence this appeal.2. We have heard the submissions advanced by Mr.A.S.Sriraman, learned counsel for the appellant and Mr.Rajesh, learned Junior Standing Counsel for the respondent. 3. The docket sheet does not reveal that the matter has been admitted thus far. Hence, on a consideration of the substantial questions of law raised for decision, the following question of law is admitted and the matter taken up for final hearing with the consent of both learned counsel:Whether the Appellate Tribunal is correct in law in sustaining the action of the respondent in rejecting the claim for exclusion of Rs.33,87,720/- out of the sale proceeds from the sale of the property/capital asset in the computation of Long Term Capital Gains overlooking the applicability of the legal theory of 'Diversion by overriding title' as well as the decision of this Hon'ble Court reported in 261 ITR 222?'4. The facts are not in dispute and the narration set out in paragraph 1 and the sub-paragraphs thereunder are admitted by both learned counsel. The legal question to be decided relates to the allowability or otherwise of the amount of Rs.33,87,720/- as cost of acquisition in the computation of capital gains under Section 48 of the Act. 7/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 20135. Section 48 is extracted below:48. Mode of computation.The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:-(i)expenditure incurred wholly and exclusively in connection with such transfer;(ii)the cost of acquisition of the asset and the cost of any improvement thereto: 6. The question that arises in the present case is as to whether the amount of Rs.33 lakhs (approx.) would constitute expenditure wholly and exclusively incurred in connection with the transfer of the asset.7. The facts as we have noticed above are to the effect that the purchase of the subject property by the appellant was on 22.01.1980. The vendors of the property were engaged in litigation with their sisters in regard to the title to various properties including the subject property. 8. Their claim was negatived by the Civil court which held that the subject property would vest in the sisters of the vendors. Hence, the title of the appellant to the subject property under deed dated 22.01.1980 was under a cloud. The Civil suit instituted qua the vendors and their sisters and other family members was in 1981, subsequent to the deed of purchase executed on 22.01.1980. 8/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 20139. By virtue of order of this Court in second appeal dated 09.04.1996 in S.A.No.458 of 1985, the sisters have been held to be the owners of the schedule property. The vendors of the Appellant thus held no title whatsoever to the property and it is only upon payment of a sum of Rs.33 lakhs (approx.) that the appellant has cleared his title and can be said to have acquired the property. 10. This is made amply clear by virtue of the recitals in the Agreement of Sale dated 07.10.2005 between the appellant and the three sisters, the whole of which is extracted below:This Agreement is made on the 7th October of 2005 between Reetha Ammal W/o Anthony Samy and residing at No.34, Santhana Gopalapuram Main Road, Villupuram (1) Saraswathi W/o Ramakrishnan and residing at Salamedu, Villupuram Taluk (2) Lakshmi W/o Ashoka Gounder and residing at Salamedu, Villupuram Taluk (3) Whereas No.2 & 3 of us had filed E.P. 236/1997 in respect of dry land comprised in S.No.93/5 on the file of District Munsif Court, Villupuram andWhereas No.1 of us had filed E.A.2403/1997 to dismiss E.P.236/1997 on the ground that it is her separate property and that the said application is pending enquiry andWhereas the parties have decided to amicably settle the dispute at the earliest and arrived at the compromise andWhereas Nos.2 & 3 of us have agreed for the application E.A.2403/1997 filed under order 21 Rule 97 C.P.C. being allowed in favour of No.1 of us and9/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013Whereas the parties have agreed that in consideration of the same No.1 of us had agreed that when an extent of 70 cents in S.No.93/5 was sold, the total sale consideration would be divided in equal moieties between Nos.2 & 3 on the one part and No.1 of us on other part andThat No.1 of us have also no objection for the said amount shall be received directly from the purchaser by Nos.2 & 3 of us andThat the Income Tax payable on the said sale price received by Nos.2 & 3 of us shall be paid by Nos.2 & 3 of us andThat No.1 of us had agreed to pay a sum of Rs.5,00,000/- to Nos.2 & 3 of us in full discharge of the compromise arrived at in respect of items 9, 10, 11, 13 & 16 of the suit properties comprised in O.S.288/81 which had been acquired by the Cuddalore Housing Board andThat Nos.2 & 3 of us assure that they would not file any execution of application in respect of those items and further agree that they would have no objection for the petition as and when filed by No.1 of us in that respect being allowed, and that Nos.2 & 3 of us agreed to withdraw the writ petition No.40423/2002 pending on the file of the Hon’ble High Court of the Judicature at Madras.The parties have thus agreed and executed this agreement.Witness:Signed byN.Ramakrishnan 1.A.ReethaS.Ashokan 2.SaraswathiA.Raphel 3.Lakshmi11. We are thus of the view that the aforesaid payment has been ‘wholly and exclusively’ incurred in connection with the transfer of the subject asset. 10/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 201312. The Division Bench of this Court in Commissioner of Income Tax V. Bradford Trading Co. (P) Ltd. (261 ITR 222) was concerned with the allowability of an amount paid to get over difficulties in the sale of the property. The Bench holds that unless such amount was paid, the transfer of property could not have taken place and hence such payment has an intimate connection to the transfer of the asset. Payment of the amount to end the litigation in respect of the property concerned was purely in the interests of the assessee. 13. In our considered view, the position of the present appellant is far better, as the title to the subject property vested only in the sisters and hence the amount of Rs.33 lakhs is, in a way, part of the sale consideration itself. The amount has been paid not merely to get over difficulties in the transfer, but to enable the transfer itself. This is amply clear from a reading of Agreement of Sale dated 07.10.2005.14. In light of the above discussion, the substantial question of law is answered in favour of the assessee and against the revenue. This Tax Case (Appeal) is allowed. No costs. [A.S.M., J] [G.A.M., J]11/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013sl 27.11.2024Index:YesNeutral Citation:YesSpeaking orderToThe Commissioner of Income TaxPuducherry. 12/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013DR.ANITA SUMANTH,J.andG.ARUL MURUGAN,J.SlT.C.(A)No.207 of 201327.11.202413/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 201314/14

T.C.(A)No.207 of 2013IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 27.11.2024CORAM :THE HONOURABLE DR.JUSTICE ANITA SUMANTHandTHE HONOURABLE MR.JUSTICE G. ARUL MURUGANT.C.(A)No.207 of 2013Smt.A.Rita.... Appellant vsThe Commissioner of Income TaxPuducherry. .... Respondent Prayer : Appeal filed under Section 260A of the Income Tax Act, 1961 against order dated 30.01.2013 made in I.T.A.No.904/Mds/2012 on the file of the Income Tax Appellate Tribunal, 'D' Bench, in respect of assessment year 2008-09.For Appellant:Mr.A.S.SriramanFor Respondent: Mr.S.RajeshJunior Standing Counsel for Mr.J.NarayanasamySenior Standing Counsel1/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013JUDGMENT(Delivered by Dr. ANITA SUMANTH.,J)The relevant sequence of dates and events are as follows:(i) The appellant/assessee purchased a property at S.No.93/5, Valudhareddy Village, Villupuram Taluk ad measuring 1.18 acres by way of a deed dated 22.01.1980 registered on the file of the Sub-Registrar, Villupuram (schedule property) from Shanmugam, Arumugam and Murugan (in short 'vendors'). (ii) That property formed part of a basket of assets that was under litigation inter se the family of the vendors. (iii) A partition suit came to be filed in O.S.No.288 of 1981 by the sisters of the vendors, viz., Saraswathi and Lakshmi, which came to be decreed in favour of the sisters partly.(iv) Assailing the decree in the Suit, the sisters of the vendors filed a first appeal before Sub-Court, Villupuram in A.S.No.135 of 1983, which confirmed the order of the Civil Court in regard to items 1 to 37 of the suit properties, which includes the schedule property at serial number 36 thereof.2/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013(v) A second appeal in S.A.No.458 of 1985 came to be filed by the vendors and Cross objections were filed by the sisters. (vi) The second appeal was disposed on 09.04.1986, a learned Judge of this Court confirming that the conclusion of the Civil Court was correct qua properties at 1 to 37. (vii) Hence, and with the passing of the order in second appeal, the title to the schedule property was held to vest in the sisters. (viii) An Execution Petition was filed by the sisters seeking to execute the decree. (ix) Pending the proceedings for execution, the parties, that is, the appellant herein and the sisters, effected a compromise of the lis, and entered into Deed of compromise dated 07.10.2005 to following effect:cld;gof;if gj;jpuk;2005 Mk; Mz;L mf;nlhgh; 7Mk; njjp tpGg;g[uk; lt[d; re;jhdnfhghyg[uk; bkapd; nuhL 34 ,yf;fj;jpy; trpf;Fk; me;njhdprhkp kidtp hPj;jh mk;khs; (1). tpGg;g[uk; jhYf;fh rhynkL fpuhkj;jpy; trpf;Fk; uhkfpUc&;zd; kidtp ru!;tjp (2). nkw;go tpGg;g[uk; jhYf;fh rhynkL fpuhkj;jpy; trpf;Fk; mnrhf ft[z;lh; kidtp yc&;kp (3) Mfpa ehk; K:tUk; vGjpf;bfhz;l xg;ge;jk; vd;dbtdpy;ek;kpy; 2. 3 egh;fs; tpGg;g[uk; khtl;l chpikapay; ePjpkd;wj;jpy; tGjbul;o fpuhkk; g[";ir 93-5 epyk; Fwpj;J jhf;fy; bra;ag;gl;l E.P.236/97 3/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013epiwntw;W kDtpid bghWj;J. ek;kpy; Kjy; egh; nkw;go brhj;J mtUf;F jdpg;gl;l ghj;akhd brhj;J vd;W fl;rp Mo nkw;go E.P.236/97 js;Sgo bra;ag;gl ntz;Lbkd;W ek;kpy; Kjy; egh; E.A.2403/1997 vd;w kDtpid jhf;fy; bra;J nkw;go kD epYitapy; ,Ue;J tUfpd;w NH;epiyapy;. cga ghh;l;ofs; fl;rp vg;goapUe;j nghjpYk; ,e;j tHf;fpid tpiutpy; xU Kot[f;F bfhz;L tuntz;Lbkd;W vz;zj;jpdhy;. ehk; midtUk; uh$pahfp. mjd;go ek;kpy; 1 tJ egh; jhf;fy; bra;j chpikapay; rl;lk; Mh;lh; 21 tpjp 97 E.A.2403/1997 vd;w kDtpid mDkjpf;f 23 egh;fs; xg;g[f;bfhz;Ls;sdh;/ mjw;F gpujpgydhf ek;kpy; 1 Mk; egh; nkw;go g[y vz; 93-5 70 brz;l; brhj;jpid fpiuak; bra;J mjd; K:yk; fpilf;Fk; fpiua bjhifapy; ghjp bjhifapid ek;kpy; 1Mk egUk; kPjp bjhifapid ek;kpy; 2. 3 egh;fSk;. rhp rkkhf vLj;Jf;bfhs;tjhf ehk; midtUk; xg;g[f;bfhz;Ls;nshk;/ nkYk; 2. 3 egh;fSf;F chpa ghjp fpiua bjhifapid fpiuajhuhplkpUe;nj 2/ 3 egh;fs; neuoahf bgw;Wf;bfhs;tjpy; 1Mk; egUf;F vt;tpj Ml;nrgiza[k; ,y;iy/ mt;thW mth;fs; bgw;Wf;bfhs;Sk; fpua bjhiff;F chpa tUkhdthpapid 2. 3 egh;fns brYj;jp bfhs;sntz;oaJ/nkYk; flY}h; tPl;L trjp thhpaj;jhy; Mh;$Pjk; bra;ag;gl;lJk; O.S.288/81y; rk;ke;jg;gl;l 9. 10. 11. 13. 16 mapl;l brhj;Jf;fs; bghWj;Jk; ekf;Fs; ehk; uh$pahfpa[s;sgoahy; mjd; xl;Lbkhj;j igrYf;fhf ek;kpy; 1Mk; egh; ek;kpy; 2. 3 egh;fSf;F xl;Lbkhj;jkhf U:/5.00.000-? (Ie;J yl;rk; kl;oy;) jUtjhft[k; 1Mk; egh; xj;Jf;bfhs;fpwhh;. mjd;go 2. 3 egh;fs; nkw;go brhj;Jf;fs; Fwpj;j epiwntw;W kD jhf;fy; bra;tjpy;iy vd;W cWjp TWtJld; mJ Fwpj;J 1Mk; egh; chpa kD (m) tHf;F jhf;fy; bra;a[k; gl;rj;jpy; nkw;go kD (m) tHf;fpid mDkjpf;f 2. 3 egh;fs; rk;kjKk; bjhptpf;fpwhh;fs;/ ,J rk;ke;jkhf 2. 3 egh;fs; 4/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013brd;id cah;ePjpkd;wj;jpy; jhf;fy; bra;Js;s ePjp nguhiz W.P.No.40423/2002 tHf;fpida[k; thg!; bgw;Wf;bfhs;fpd;wdh;/ ,e;jgof;F ehk; K:tUk; rk;kjpj;J vGjpf;bfhz;l cld;gof;if gj;jpuk;/(x) An application thus came to be filed by the Appellant in E.A.No.2403 of 1997 under Order 21 Rule 97 of the Civil Procedure Code praying to dismiss E.P.No.236 of 1997. (xi) In the course of the Execution proceedings, the Principal District Munsif, Villupuram passed an order dated 19.10.2005 recording the memo filed by Rita, Saraswathi and Lakshmi to the effect that they had no objection to E.A.No.2403 of 1997 being allowed. The litigation inter se the parties thus came to an end by virtue of the aforesaid order only. (xii) The Appellant filed a return of income for assessment year (AY) 2008-09 on 29.07.2008 returning capital gains computed on the basis that the amount paid by her to the sisters be taken into account in determining the computation of cost of acquisition of the subject property. (xiii) An assessment came to be made on 31.10.2010 and in completing the assessment, the Assessing Authority took the view that the 5/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013amounts paid as compensation did not constitute expenditure that could be allowed in the computation of capital gains. (xiv) Before the Commissioner of Income Tax (Appeals) in first appeal, the appellant reiterated its case that the compensation constituted part of the cost of acquisition. All relevant documents such as the deed of purchase dated 22.01.1980, order of the Civil Court dated 23.01.1985 in O.S.No.288 of 1981, order in First Appeal dated 23.01.1985 in A.S.No.235 of 1983, the order of the High Court in Second Appeal dated 09.04.1996 in S.A.No.458 of 1985, order passed by the Principal District Munsif on 19.10.2005 in the interim application filed by the appellant, compromise memo dated 07.10.2005, Agreement of sale between the appellant and the three sisters dated 07.10.2005 and the order of the Principal District Munsif dated 06.08.2008 closing the application based on the memo were placed before the CIT(A), who on consideration of the same, accepted the assessee's contention. (xv) The above order was reversed on 30.01.2013 by the Income Tax Appellate Tribunal ('ITAT'/'Tribunal') at the instance of the revenue. The Tribunal took the view that the compensation paid would, at best, only 6/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013amount to application of the amount and not cost of acquisition under Section 48 of the Act. Hence this appeal.2. We have heard the submissions advanced by Mr.A.S.Sriraman, learned counsel for the appellant and Mr.Rajesh, learned Junior Standing Counsel for the respondent. 3. The docket sheet does not reveal that the matter has been admitted thus far. Hence, on a consideration of the substantial questions of law raised for decision, the following question of law is admitted and the matter taken up for final hearing with the consent of both learned counsel:Whether the Appellate Tribunal is correct in law in sustaining the action of the respondent in rejecting the claim for exclusion of Rs.33,87,720/- out of the sale proceeds from the sale of the property/capital asset in the computation of Long Term Capital Gains overlooking the applicability of the legal theory of 'Diversion by overriding title' as well as the decision of this Hon'ble Court reported in 261 ITR 222?'4. The facts are not in dispute and the narration set out in paragraph 1 and the sub-paragraphs thereunder are admitted by both learned counsel. The legal question to be decided relates to the allowability or otherwise of the amount of Rs.33,87,720/- as cost of acquisition in the computation of capital gains under Section 48 of the Act. 7/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 20135. Section 48 is extracted below:48. Mode of computation.The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:-(i)expenditure incurred wholly and exclusively in connection with such transfer;(ii)the cost of acquisition of the asset and the cost of any improvement thereto: 6. The question that arises in the present case is as to whether the amount of Rs.33 lakhs (approx.) would constitute expenditure wholly and exclusively incurred in connection with the transfer of the asset.7. The facts as we have noticed above are to the effect that the purchase of the subject property by the appellant was on 22.01.1980. The vendors of the property were engaged in litigation with their sisters in regard to the title to various properties including the subject property. 8. Their claim was negatived by the Civil court which held that the subject property would vest in the sisters of the vendors. Hence, the title of the appellant to the subject property under deed dated 22.01.1980 was under a cloud. The Civil suit instituted qua the vendors and their sisters and other family members was in 1981, subsequent to the deed of purchase executed on 22.01.1980. 8/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 20139. By virtue of order of this Court in second appeal dated 09.04.1996 in S.A.No.458 of 1985, the sisters have been held to be the owners of the schedule property. The vendors of the Appellant thus held no title whatsoever to the property and it is only upon payment of a sum of Rs.33 lakhs (approx.) that the appellant has cleared his title and can be said to have acquired the property. 10. This is made amply clear by virtue of the recitals in the Agreement of Sale dated 07.10.2005 between the appellant and the three sisters, the whole of which is extracted below:This Agreement is made on the 7th October of 2005 between Reetha Ammal W/o Anthony Samy and residing at No.34, Santhana Gopalapuram Main Road, Villupuram (1) Saraswathi W/o Ramakrishnan and residing at Salamedu, Villupuram Taluk (2) Lakshmi W/o Ashoka Gounder and residing at Salamedu, Villupuram Taluk (3) Whereas No.2 & 3 of us had filed E.P. 236/1997 in respect of dry land comprised in S.No.93/5 on the file of District Munsif Court, Villupuram andWhereas No.1 of us had filed E.A.2403/1997 to dismiss E.P.236/1997 on the ground that it is her separate property and that the said application is pending enquiry andWhereas the parties have decided to amicably settle the dispute at the earliest and arrived at the compromise andWhereas Nos.2 & 3 of us have agreed for the application E.A.2403/1997 filed under order 21 Rule 97 C.P.C. being allowed in favour of No.1 of us and9/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013Whereas the parties have agreed that in consideration of the same No.1 of us had agreed that when an extent of 70 cents in S.No.93/5 was sold, the total sale consideration would be divided in equal moieties between Nos.2 & 3 on the one part and No.1 of us on other part andThat No.1 of us have also no objection for the said amount shall be received directly from the purchaser by Nos.2 & 3 of us andThat the Income Tax payable on the said sale price received by Nos.2 & 3 of us shall be paid by Nos.2 & 3 of us andThat No.1 of us had agreed to pay a sum of Rs.5,00,000/- to Nos.2 & 3 of us in full discharge of the compromise arrived at in respect of items 9, 10, 11, 13 & 16 of the suit properties comprised in O.S.288/81 which had been acquired by the Cuddalore Housing Board andThat Nos.2 & 3 of us assure that they would not file any execution of application in respect of those items and further agree that they would have no objection for the petition as and when filed by No.1 of us in that respect being allowed, and that Nos.2 & 3 of us agreed to withdraw the writ petition No.40423/2002 pending on the file of the Hon’ble High Court of the Judicature at Madras.The parties have thus agreed and executed this agreement.Witness:Signed byN.Ramakrishnan 1.A.ReethaS.Ashokan 2.SaraswathiA.Raphel 3.Lakshmi11. We are thus of the view that the aforesaid payment has been ‘wholly and exclusively’ incurred in connection with the transfer of the subject asset. 10/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 201312. The Division Bench of this Court in Commissioner of Income Tax V. Bradford Trading Co. (P) Ltd. (261 ITR 222) was concerned with the allowability of an amount paid to get over difficulties in the sale of the property. The Bench holds that unless such amount was paid, the transfer of property could not have taken place and hence such payment has an intimate connection to the transfer of the asset. Payment of the amount to end the litigation in respect of the property concerned was purely in the interests of the assessee. 13. In our considered view, the position of the present appellant is far better, as the title to the subject property vested only in the sisters and hence the amount of Rs.33 lakhs is, in a way, part of the sale consideration itself. The amount has been paid not merely to get over difficulties in the transfer, but to enable the transfer itself. This is amply clear from a reading of Agreement of Sale dated 07.10.2005.14. In light of the above discussion, the substantial question of law is answered in favour of the assessee and against the revenue. This Tax Case (Appeal) is allowed. No costs. [A.S.M., J] [G.A.M., J]11/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013sl 27.11.2024Index:YesNeutral Citation:YesSpeaking orderToThe Commissioner of Income TaxPuducherry. 12/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 2013DR.ANITA SUMANTH,J.andG.ARUL MURUGAN,J.SlT.C.(A)No.207 of 201327.11.202413/14 https://www.mhc.tn.gov.in/judis T.C.(A)No.207 of 201314/14